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Without a Reasonable Stout: Court of Appeals Holds Bars have Right to Earn a Living

Mandatory lockdowns enacted across North Carolina during COVID-19 fermented intoxicatingly interesting questions surrounding the scope and breadth of North Carolina’s “fruits of labor” clause, enshrined in Article I, Section 1 the State’s constitution. Over the past year, decisions have shown this pint-sized provision to be frothing with potential.

Last year, the Court of Appeals decided Kinsley v. Ace Speedway Racing, Ltd., 2022-NCCOA-524, 284 N.C. App. 665, 877 S.E.2d 54, review allowed, 883 S.E.2d 455 (N.C. 2023). On May 20, 2020, Governor Roy Cooper issued Executive Order 141, which prohibited all outdoor gatherings of more than 25 people. This order had the effect of shutting down the operations of Ace Speedway in Altamahaw, North Carolina. The racetrack continued to operate, causing the North Carolina Department of Health and Human Services to seek a temporary restraining order enjoining the racetrack’s business, but the racetrack countersued alleging that DHHS’s actions violated its right to enjoy the fruits of its labor. The Court of Appeals sided with the racetrack, explaining that the actions of DHHS could be viewed as arbitrary.

Preceding Executive Order 141, however, was Executive Order 118—issued March 17, 2020. This order ordered all bars in North Carolina to close. Although bars were permitted to partially reopen on February 26, 2021, they were not permitted to fully reopen until May 14, 2021. In total, cocktail shakers went unfilled for 11 months, and earnings didn’t reach their untapped potential until three months thereafter.

On December 22, 2020, seventeen plaintiffs, consisting of bar owners from Buncombe to Carteret Counties, filed a lawsuit against Governor Cooper and the State of North Carolina alleging, in part, that Governor Cooper’s executive orders, which placed a blanket prohibition on an entire economic sector, violated their collective rights to enjoy the fruits of their labor. The defendants moved to dismiss the plaintiffs’ complaint on the basis that they failed to state a claim upon which relief can be granted.

The Court of Appeals, in Howell v. Cooper, No. COA22-571 (N.C. Ct. App. Sept. 5, 2023), sided with the bar owners. Article I, Section 1, the Court explained, “‘creates a right to conduct a lawful business or to earn a livelihood that is ‘fundamental’ for purposes of state constitutional analysis.’” Id. (quoting Treants Enters., Inc. v. Onslow County, 83 N.C. App. 345, 354, 350 S.E.2d 365, 371 (1986)). Quoting the North Carolina Supreme Court’s holding in  State v. Harris, 216 N.C. 746, 759, 6 S.E.2d 854, 863 (1940), the Court stated that “‘the power to regulate a business or occupation does not necessarily include the power to exclude persons from engaging in it. When this field has been reached, the police power is severely curtailed.’”

Distilling this precedent, the Court of Appeals held that the bar owners “have a fundamental right to earn a living from the operation of their respective bar businesses. The constitutional right to produce a living from the income of one’s business is a protected right under the fruits of labor clause.” Howell, No. COA22-571. For this reason, where a “complaint alleges the blanket prohibition . . . on an entire economic section violates one’s right to earn a living, that complaint states a colorable constitutional claim.” Id. (citing Deminski on behalf of C.E.D. v. State Bd. of Educ., 377 N.C. 406, 413, 858 S.E.2d 788, 793.)

Furthermore, the Court of Appeals held that the plaintiffs successfully stated a claim under Article I, Section 19 of the North Carolina Constitution. This provision is North Carolina’s version of the federal substantive due process clause. McNeill v. Harnett Cnty., 327 N.C. 552, 563, 398 S.E.2d 475, 481 (1990). Therefore, the law of the land clause protects those “fundamental rights and liberties which are, objectively, deeply rooted in [this State’s] history and tradition and implicit in the concept of ordered liberty.” State v. Dobbins, 277 N.C. 484, 497, 178 S.E.2d 449, 457, (1971).

Because the North Carolina Supreme Court holds that the right to enjoy the fruits of one’s own labors is “inalienable” and “fundamental,” State v. Harris, 216 N.C. 746, 759, 6 S.E.2d at 854, 863 (1940),  Roller v. Allen, 245 N.C. 516, 518–19, 96 S.E.2d 851, 854 (1957), the Court of Appeals explained that the bar owners “have a fundamental right to earn a living from the operation of their respective bar businesses.” Howell, No. COA22-571. Therefore, the Court concluded, the plaintiffs sufficiently pleaded a constitutional claim under the law of the land clause.

Although it held that the plaintiffs’ right to earn a living is “fundamental” for the purposes of the North Carolina Constitution’s due process clause, the Court did not articulate what test or standard—either a rational basis test, intermediate scrutiny, strict scrutiny, or some other standard—applies to the plaintiffs’ due process claims. In recent decisions, the Court of Appeals and Supreme Court have suggested that the State’s actions violate one’s rights under Article I, Section 1 when those actions are “arbitrary.” See, e.g., Tully v. City of Wilmington, 370 N.C. 527, 535, 810 S.E.2d 208, 215 (2018); Kinsley v. Ace Speedway Racing, Ltd., 2022-NCCOA-524, ¶ 23, 284 N.C. App. 665, 674, 877 S.E.2d 54, 61, review allowed, 883 S.E.2d 455 (N.C. 2023); Mole’ v. City of Durham, 2021-NCCOA-527, ¶ 23, 279 N.C. App. 583, 590, 866 S.E.2d 773, 779, review allowed sub nom. Mole v. City of Durham, 868 S.E.2d 851 (N.C. 2022), and aff’d, ordered not precedential, 384 N.C. 78, 884 S.E.2d 711 (2023). The Court, however, sidestepped any discussion of whether Governor Cooper’s actions were arbitrary, rational, or whether they were narrowly tailored to serve substantial or compelling government interests. 

For this reason primarily, Judge Arrowood dissented. Judge Arrowood explained that the North Carolina Supreme Court allows the State, “‘through the exercise of its police power, to regulate economic enterprises provided the regulation is rationally related to a proper governmental purpose.’” Howell, No. COA22-571 (Arrowood, J. dissenting) (quoting Poor Richard’s, Inc. v. Stone, 322 N.C. 61, 64, 366 S.E.2d 697, 699 (1988)). Judge Arrowood noted that the Supreme Court holds that “[t]his is the test used in determining the validity of state regulation of business under both Article I, Section 1, and Article I, Section 19.’” Id.

Judge Arrowood indicated that it has been “long understood” that the “‘[t]he right to work and to earn a livelihood is a property right that cannot be taken away except under the police power of the State in the paramount public interest for reasons of health, safety, morals, or public welfare.’” Id. (emphasis in original) (quoting Roller, 245 N.C. at 518, 96 S.E.2d at 854.) Here, Judge Arrowood explained, the “COVID-19 pandemic was an unprecedented event that caused the death of over 29,000 North Carolina citizens.  It was a novel occurrence in modern times and put our national and state leaders in the position to have to make tough, effective choices to swiftly protect the health and safety of their constituents.” Id. To this end, Judge Arrowood indicated, Governor Cooper’s executive orders, issued to combat a virus during a pandemic, were rational and a proper exercise of government power.

Because the Howell decision was split, the defendants have a right of appeal to the North Carolina Supreme Court. Considering these same defendants appealed the Kinsley decision, it is likely the Howell decision will also be appealed.

In light of the fact that the North Carolina Supreme Court recently took the unprecedented step of unpublishing—without any explanation—the Court of Appeals’ unanimous decision in Mole’ v. City of Durham, 2021-NCCOA-527, 279 N.C. App. 583, the fruits of labor clause is in need of further clarification following Tully. Mole’ v. City of Durham, 384 N.C. 78, 81, 884 S.E.2d 711, 713 (2023) (Morgan, J. dissenting). With both Kinsley and, soon (probably), Howell under consideration by the Supreme Court, the Justices have the opportunity to further define the scope and breadth of Article I, Section 1.

In addition, the Supreme Court can address an ambiguity in its Article I, Section 1 jurisprudence.  As Judge Arrowood explained, the Supreme Court previously held that rights protected by Article I, Section 1 only receive rational basis review. Poor Richard’s Inc., 322 N.C. 61, 366 S.E.2d 697 (1988). Subsequent decisions, however, indicate that those same rights are “fundamental.” King v. Town of Chapel Hill, 367 N.C. 400, 408, 758 S.E.2d 364, 371 (2014). Under federal law, actions implicating a person’s “fundamental rights” must withstand strict scrutiny, rather than a rational basis test. See, e.g., Romer v. Evans, 517 U.S. 620, 631 (1996). Although the United States and North Carolina Constitutions differ in the scope and breadth of their protections (as well as the analyses employed in evaluating them), the North Carolina Supreme Court’s determination that the right to earn a living is “fundamental” suggests that Article I, Section 1 deserves more than rational basis review.

For now, however, dram shop owners can take solace in knowing that the North Carolina Constitution fortifies their right to enjoy the fruits of their labor, while their patrons enjoy the fruits in their drinks.

September 19, 2023 Jeffrey Steven McConnell Warren
Posted in  General